It is approaching 5 years since the PRA regulations relating to rent stress tests and portfolio landlords came into effect in 2017. The significant changes to rent stress tests across the buy-to-let mortgage market meant that many landlords were unable to meet the new rental calculations for short term fixed rates, such as 2 or 3 year products.
The PRA regulations do not apply for fixed rates of 5 or more years, so landlords were often obliged to take out a longer term mortgage product. For this reason, the popularity of 5 year fixed rates has rocketed in recent years.
For portfolio landlords, defined as having 4 or more mortgaged buy-to-let properties, additional underwriting requirements were also introduced in 2017. Lenders are now required to stress test the applicant’s entire buy-to-let portfolio as part of their underwriting process, to ensure that it isn’t too highly leveraged. Portfolio customers may also be asked to provide business plans and cash flow forecasts to support their applications.
Due to the increasing regulations and tax changes applied to buy-to-let over the last 5 years or so, there has been talk in the sector, supported by research evidence, that some landlords have considered exiting the buy-to-let investment market or reducing the size of their portfolios.
However, for many professional portfolio landlords buy-to-let still makes sense, and for those with 5 year fixed rates that are approaching maturity, now could be a good time to look at refinancing options.
Portfolio landlords have a diverse range of mortgage needs depending on the property type, LTV requirements, age range, tax bracket, limited company status and a whole host of specific criteria points that lenders will look at when assessing a case. There are lenders in the market who have opted out of the portfolio landlord space, preferring to focus on more ‘vanilla’ customers. This means that professional property investors will often find themselves using more specialist buy-to-let mortgage providers, possibly with a lengthier application process and slower decision making as lenders now have more information to assess.
Some lenders have a limit on how many mortgages they will provide to customers or will only lend to landlords with a portfolio up to a specific size. Other lenders such as Paragon, Foundation and Landbay have large aggregate lending policies or no limit on the total number of properties in the applicant’s portfolio.
Buy-to-let lending policies vary enormously with no two lenders taking exactly the same approach. Some buy-to-let cases can be complex and broad technical knowledge is required by a specialist broker to find the best solution for their clients.
For portfolio landlords looking to remortgage one or more properties in their portfolio, there are some excellent rates available and there are usually solutions for all scenarios, even the most complex cases. Like-for-like remortgages where no capital raising is required are normally a straightforward option providing the portfolio application meets lender underwriting criteria.
If the client is looking to release equity from their property, it is worth checking buy-to-let lending policies to ensure that the reason for capital raising is acceptable to the lender. Lenders normally allow capital raising for a further property purchase, but some may not accept paying tax bills or debt consolidation, while others will provide capital raising for any legal purpose.
Handling large portfolio cases can be more time consuming and it may take considerable effort to find the right provider for the client, but it can also be rewarding especially if multiple properties are being remortgaged at one time. Perseverance and patience are key with these clients.